July 1st, 2011 7:31 AM by Lehel S.
The bond and mortgage markets opened a little better this morning ahead of key data points at 10:00 when the June ISM manufacturing report is released and the U. of Michigan consumer sentiment index is revealed. Stock indexes in early trading about unchanged. Manufacturing growth is slowing from China to Europe; China’s factory index fell to the lowest level since February 2009, while in the 17-nation euro area, a gauge slipped to an 18-month low. German manufacturing expanded at the weakest pace in 17 months, while Italy, Ireland, Spain and Greece contracted. In the U.K. and India, output growth also slowed.
ECB President Jean-Claude Trichet reiterated yesterday that policy makers are ready to raise the benchmark interest rate further from 1.25 percent to fight inflation threats even as governments struggle to contain Greece’s debt crisis. They will hold their next monetary policy meeting on July 7 in Frankfurt.
Crude oil and gold trading lower this morning; crude early was down $1.20, gold at 9:30 off $15.00.
At 9:30 the DJIA opened flat, the 10 yr note +3/32 and mortgage prices +3/32 (.09 bp) frm yesterday's close.
At 9:55 the U. of Michigan consumer sentiment index expected unchanged at 71.8 frm two weeks ago; hit at 71.5, down from 79.6 at the end of May. Current conditions 82.0 frm 79.6, expectations 64.8 frm 66.8 two weeks ago and the 12 month outlook 74.0 frm 78.0. No reaction to the data with the ISM hitting 5 minutes later at 10:00.
At 10:00 the June ISM manufacturing index, expected at 52.0 frm 53.5 in May, increased to 55.3. New orders increased to 51.6 frm 51.0, employment at 59.9 frm 58.2 and prices pd at 68.0 frm 76.5. Like yesterday's Chicago regional report, better than expected and sent stock indexes higher and the bond and mortgage markets lower in prices, higher in yields prior to the release.
May construction spending expected unchanged was down 0.6%.
As noted in the past two days, expect increased market volatility in equities, bonds, energy and precious metals in the next week or two. The rapid increase in interest rates since Tuesday appears to have caught investors off guard, markets will take some time to assess the potential impact on economies, inflation and the potential implications of an interest rate increase in Europe next week. The data this morning is adding to the swift turn in outlooks for the economy; after a series of very weak data points on May data now the data suggests the economy is showing slight signs of improvement. The stock market jumped higher on the 10:00 data, the 10 yr note yield hit 3.20% +4 bp on the initial reaction to the ISM report.